Is this a disaster in the latest Ledger firmware update build?

Hardware wallet provider Ledger recently upgraded its firmware to version 2.2.1. He introduced an additional safety net called “Ledger Recover”, which the crypto community is vehemently rejecting.

While upgrades are important given the fast-moving nature of cryptocurrencies, Ledger is now criticized After giving users the option to store their seed phrases online. The hardware wallet maker said the feature makes it easy for users to quickly recover their seed phrases in case they lose them.

The “Ledger Recover” feature was discarded

A subscription-based service called “Ledger Recover” effectively gives producers access to customers’ seed phrases; Defeating the purpose of using a cold wallet in the first place.

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The platform says that Recover is an “ID-based key recovery service that provides backups for seed phrases for coins such as bitcoin”.

Previously, co-founder of Ledger Said Recover will split a seed phrase into three pieces. A section is distributed to Ledger, Coincover – a crypto custody firm, and Escrotech, a company that escrows the code. Therefore, if a user loses access to their cold wallet by losing their private keys, two out of three custodians can combine their codes to recover the wallet’s contents.

While this can help, as it is designed, a cold or hardware wallet is noncustodial. Technically, it should be separated from the Internet. By default, Ledger wallet holders must always be responsible for their own seed phrases.

Seed phrases allow users to sign transactions verifying that they are the true owners. The token owner loses access to all his coins whenever they are lost.

Although the “Ledger Recover” feature is a precaution, some also claim that the move makes Ledger a “hot” wallet. A hot wallet is a cryptocurrency wallet connected to the Internet and is often the target of nefarious agents. Whenever hackers attack, their goal is to wipe clean assets stored in hot wallets such as MetaMask or Coinbase wallets.

KYC Requirements and Learning from the Past

In addition to requiring access to the private keys to the ledger, the “recovery” feature demands that users verify their identity as part of Know Your Customer (KYC) regulations.

As part of this verification and KYC compliance, users need to submit their government issued cards. Critics say this goes against the principles of crypto which work towards maintaining privacy and dispersing power from a single entity.

Trusting personal identity documents to a centralized entity could be disastrous. Ledger had a database in 2020 tampered withAnd the hackers dumped the confidential information of hundreds of thousands of wallet buyers, including physical addresses.

hackers Later The same dumped details were used to target customers in an extortion campaign that also incriminated some of Ledger’s top executives.

Feature image from Canva, chart from TradingView